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Chapter 2: Costing Systems: Job Order Costing
Student: ___________________________________________________________________________
1. A job order costing system measures costs of each processes using an inventory account for each.
True False
2. The computations for costs to be transferred out of Work in Process Inventory differ if the production process
involves multiple departments rather than a single department.
True False
3. Like a job order costing system, a process costing system is restricted to one Work in Process Inventory
account.
True False
4. Identical products are produced in a continuous flow production process.
True False
5. In a job order costing system, costs are traced to a specific job order.
True False
6. An advertising company would probably use a process costing system.
True False
7. Companies that produce custom-made products usually use a process costing system.
True False
8. Job order costing is used by companies that make unique or special-order products.
True False
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9. In a process costing system, product costs are traced to work cells.
True False
10. A job order costing system is used by companies that manufacture large amounts of similar products.
True False
11. A typical operations costing system for a manufacturer incorporates parts of both job order costing and
process costing.
True False
12. The production process determines the product costing system needed.
True False
13. A process costing system first assigns the costs to the products manufactured by the departments, and then
traces the costs of direct materials, direct labor, and overhead to departments.
True False
14. A company using the periodic inventory system records cost of goods sold when products are sold.
True False
15. The purchasing process begins with a request for indirect materials, whereas the manufacturing process
begins with a request for direct materials.
True False
16. Costs for individual jobs are maintained on material cost cards when job order costing is in use.
True False
17. Job order cost cards for incomplete jobs make up the ending balance of the Finished Goods Inventory
account.
True False
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18. When a job has been completed, all of the costs assigned to that job are moved to the Cost of Goods Sold
account.
True False
19. In a job order costing system, when overhead costs are applied, they decrease the Work in Process Inventory
account.
True False
20. In a job order costing system, indirect labor costs incurred are debited to the Overhead account.
True False
21. In a job order costing system, the transfer of overhead costs to the Work in Process Inventory account must
take place before product unit costs can be computed.
True False
22. In a job order costing system, when indirect materials are used, the Overhead account is increased.
True False
23. In a job order costing system, indirect labor costs are recorded by increasing the Payroll Payable account
and increasing the Overhead account.
True False
24. In a job order costing system, when the goods are sold, the Cost of Goods Sold account is increased, and the
Finished Goods Inventory account is decreased for the selling price of the goods sold.
True False
25. The ending balance in the Work in Process Inventory account equals the ending Overhead balance.
True False
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26. A zero balance in Work in Process Inventory at the start of the period means all previously completed
products have been shipped.
True False
27. To prepare financial statements at the end of the accounting period, the actual overhead cost for the period
and the estimated overhead that was applied during the period must be reconciled in a job order costing system.
True False
28. If applied overhead exceeds actual overhead, cost of goods sold must be increased by the amount of the
overapplied overhead in a job order costing system.
True False
29. Job order cost cards and cost flows through the inventory accounts form the core of a job order costing
system.
True False
30. Regardless of the cost accounting system used, when the products are completed, they are transferred from
work in process inventory to finished goods inventory.
True False
31. Job costs in a service organization end up in the Finished Goods Inventory account when a job is
completed.
True False
32. In cost-plus contracts, a predetermined amount of profit is added to the cost of the contract.
True False
33. In a service organization using a job order costing system, actual overhead will be the same as applied
overhead.
True False
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34. The ending balance of Work in Process account is compared with the total costs shown on the job order cost
cards to ensure correctness.
True False
35. In a job order costing system, a separate job order cost card is used for each individual job.
True False
36. After a job is completed, the product’s unit cost can be determined from the job order cost card.
True False
37. The process of assigning a collection of indirect costs is termed as cost pooling.
True False
38. Predetermined overhead rate is calculated by dividing actual overhead costs by actual cost driver activity.
True False
39. Overhead applied is calculated by multiplying predetermined activity rate and actual cost driver activity.
True False
40. If the actual overhead costs are more than applied overhead costs, the difference represents overapplied
overhead costs.
True False
41. When planning, managers allocate overhead costs using either the traditional or ABC approach.
True False
42. Managers’ knowledge on unit cost helps in setting reasonable selling prices for products.
True False
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43. Job estimates must be compared with actuals for evaluating performance.
True False
44. Service organizations use unit costs of services to determine inventory balances.
True False
45. Financial statements referred by external stakeholders compare actual unit costs with targeted unit costs.
True False
46. Managers prepare financial statements to communicate the company’s performance to its external users.
True False
47. The type of product costing system used by a company is dictated by the
A. cost flow assumptions made by the company.
B. production process of the product.
C. inventory system used by the company.
D. selling price of the product.
48. Which of the following represents the product costs on the income statement?
A. Cost of goods sold
B. Sales revenue
C. Sales commissions
D. None of these
49. Which of the following is a document prepared every period for each process?
A. Process cost card
B. Process cost report
C. Process cost control sheet
D. Process cost recognition card
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50. In which of the following situations should a company use process costing rather than job order costing?
A. If the product cost is accumulated in a single Work in Process Inventory account
B. If the product is produced based on individual customer specifications
C. If the product is composed of mass-produced homogeneous units
D. If the product goes through a single stage of production
51. Which of the following firms would most likely use a process costing system?
A. Firm providing legal services
B. Firm manufacturing papers
C. Firm providing advertising services
D. Firm printing wedding invitations
52. Which of the following characteristics applies to process costing, but does not apply to job order costing?
A. The use of single Work in Process accounts
B. The use of equivalent units
C. Separate, identifiable jobs
D. The use of predetermined overhead rates
53. Which of the following is not an objective of product costing systems?
A. To provide information for cost planning
B. To assist in the preparation of the income statement
C. To determine the taxable profits
D. To provide information for product pricing
54. Which of the following is a characteristic of a job order costing system?
A. Uses several Work in Process Inventory accounts
B. Uses job cost cards to keep track of each job in process
C. Assigns costs to specific processes
D. Recognizes cost of materials when products are sold
55. Which of the following products would probably use a job order costing system?
A. Pens
B. Instant coffee
C. Computer monitors
D. Advertisements
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56. Process costing is applicable to production operations that
A. utilize several processes, departments, or work cells in a series.
B. do not assign overhead costs to operations.
C. produce products that are made to order.
D. produce unique products.
57. Which of the following accurately describes a difference between job order and process costing systems?
A. In job order costing systems, overhead costs are treated as product costs, whereas in process costing systems,
overhead costs are treated as period costs.
B. Job order costing systems do not assign costs to production, whereas process costing systems do.
C. In job order costing systems, costs are traced to a specific job order, whereas in process costing systems,
costs are traced to work cells and then assigned to products manufactured.
D. In a job order costing system, selling costs are treated as period costs, whereas they are treated as product
costs in a process costing system.
58. A job order costing system measures product costs
A. using process cost reports.
B. in several Work in Process Inventory account.
C. with regard to the process that created the cost.
D. for each completed unit.
59. Which of the following is not a characteristic of a process costing system?
A. A specific time period is used
B. Several Work in Process Inventory accounts are used
C. Product costs are grouped by processes, departments, or work cells
D. Customized products are manufactured
60. Which of the following products would probably be produced by a company using a process costing
system?
A. House
B. Wedding gowns
C. Bags
D. Movie
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61. Which of the following entities would probably use a process costing system?
A. An oil refinery
B. A yacht builder
C. A custom furniture company
D. A custom jewelry manufacturer
62. If the difference between overhead applied and actual overhead is insignificant, it is usually written off to
A. Cost of Goods Sold.
B. Work in Process Inventory.
C. Finished Goods Inventory.
D. Materials Inventory.
63. The applied overhead of a job is more than the actual overhead and it is considered immaterial by the
company. An entry to record this would involve a
A. debit to the Materials Inventory account.
B. credit to the Overhead account.
C. credit to the Cost of Goods Sold account.
D. debit to the Work in Process Inventory account.
64. Applied overhead of a company exceeds actual overhead when the
A. Overhead account has a credit balance.
B. journal entry to account for the difference involves a debit to Cost of Goods Sold.
C. Overhead account has a debit balance.
D. company has overspent in the overhead cost area.
65. If there is a credit balance in the Payroll Payable at the end of the accounting period, it represents
A. the amount by which applied payroll was greater than actual payroll.
B. the amount by which actual payroll was greater than applied payroll.
C. labor costs which have not been paid.
D. an amount that should be charged to Cost of Goods Sold.
66. When Smith Builder’s Designer House #201 is completed, Smith’s
A. Work in Process Inventory is increased.
B. total assets are increased.
C. Work in Process Inventory is decreased.
D. total assets are decreased.
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67. The total of the dollar amounts on the job order cost cards that have not been completed would be equal to
the
A. cost of goods completed.
B. balance in the Finished Goods Inventory account.
C. cost of goods sold.
D. balance in the Work in Process Inventory account.
68. Costs assigned to the building of a ship should appear on the income statement when
A. the ship is completed.
B. the ship is sold.
C. the purchase order to manufacture the ship is received.
D. cash is collected for the sale of the ship.
69. The basic document for keeping track of all costs in a job order costing system is a
A. job order cost card.
B. labor time card.
C. process cost report.
D. materials requisition form.
70. Under a job order costing system, the dollar amount of the entry to record the transfer of goods from Work
in Process Inventory to Finished Goods Inventory is the total of the costs charged to all jobs
A. started during the period.
B. completed and sold during the period.
C. completed during the period.
D. started and completed during the period.
71. The Work in Process Inventory account in a job order costing system consists of
A. time conversion cards.
B. job conversion cards.
C. job order cost cards.
D. product cost cards.
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72. When direct materials are issued from inventory to production under a job order costing system, an increase
is recorded in the
A. Overhead account.
B. Work in Process Inventory account.
C. Materials Inventory account.
D. Finished Goods Inventory account.
73. The following information is available at the end of May:
Balance in work in process on May 1
$141,800
Direct materials costs for May
174,500
Direct labor costs for May
162,500
Overhead applied at rate of 140% of direct labor
dollars
Jobs completed during May:
Job 84
Job 85
Job 86
Job 87
$198,780
102,520
119,450
93,150
Job 88 was not complete at the end of May.
If $72,400 of materials were charged to Job 88's job cost card, how much overhead was applied to Job 88?
A. $35,100
B. $70,000
C. $72,400
D. $120,000
74. The balance in the Work in Process Inventory account on October 1 was $14,000, and the balance on
October 31 was $85,400. Costs incurred during the month were as follows: direct materials, $55,820; direct
labor, $58,420; and overhead, $40,000. What amount was transferred to the Finished Goods Inventory account
during October?
A. $82,840
B. $154,240
C. $239,640
D. $140,240
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75. Unit costs for each job are computed by dividing
A. estimated total costs by planned units to be produced.
B. actual costs by actual units sold.
C. cost of direct materials, direct labor, and overhead by number of units produced.
D. estimated total costs by actual units sold.
76. The _________ provides the most direct means of calculating unit costs for a job.
A. job order cost card
B. Finished Goods Inventory account
C. general ledger
D. Materials Inventory account
77. The following information is available at the end of the period for the completed Job 73:
Beginning balance
Direct materials
Direct labor
Overhead applied
$17,000
30,600
24,500
41,700
Total number of units produced
Total number of units sold
35,000
28,500
What is the unit cost for Job 73?
A. $2.55
B. $3.19
C. $1.50
D. $3.92
78. The balances on the job cost sheets of uncompleted jobs will be equal to the balance in the
A. Finished Goods Inventory account.
B. Cost of Goods Sold account.
C. Work in Process Inventory account.
D. Overhead account.
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79. Applied overhead is less than actual overhead incurred during the year. Which of the following journal
entries is made to close the Overhead account if this difference is immaterial?
A. Overhead
Work in Process
B. Cost of Goods Sold
Overhead
C. Overhead
Finished Goods Inventory
D. Cost of Goods Sold
Finished Goods Inventory
80. Which of the following is the entry to record indirect labor costs incurred?
A. Work in Process Inventory
Overhead
B. Overhead
Work in Process Inventory
C. Overhead
Payroll Payable
D. Payroll Payable
Overhead
81. In a job order costing system, the purchase of materials on account should be recorded as follows:
A. Materials Inventory
Work in Process Inventory
B. Materials Inventory
Accounts Payable
C. Work in Process Inventory
Accounts Payable
D. Accounts Payable
Materials Inventory
82. Service organizations incur little or no cost for
A. services.
B. overhead.
C. materials.
D. labor.
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83. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The indirect labor cost is
A. $7,000.
B. $3,000.
C. $14,000.
D. $30,000.
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84. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The cost of goods manufactured is
A. $62,300
B. $64,000
C. $18,000
D. $1,700
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85. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The cost of goods sold (after adjusting for under- or overapplied overhead) is
A. $92,300.
B. $60,300.
C. $34,300.
D. $66,300.
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86. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The applied overhead is
A. $31,000.
B. $30,000.
C. $18,000.
D. $62,300.
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87. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The cost of direct materials used in production is
A. $15,000.
B. $11,000.
C. $29,000.
D. $62,300.
88. The costs of completed jobs in a service organization is transferred to the
A. Work in Process Inventory account.
B. Finished Goods Inventory account.
C. Cost of Goods Sold account.
D. Cost of Services account.
89. Which of the following cannot be learned by analyzing job order cost cards?
A. The balance of Work in Process Inventory at the end of the period
B. The cost of all jobs done for a particular customer
C. The completion time of jobs yet to be completed
D. The type of products ordered by a particular customer
90. Johnson Technology specializes in graphic design and video production. In October 2014, the company
incurred the following costs for providing services to one of its clients.
Supplies
Labor
Overhead
$
200
1,500
1,800
Johnson Technology's contract with the client discloses a 20% profit margin on the cost incurred. Determine the profit earned by the company by
providing services.
A. $3,500
B. $700
C. $4,200
D. $360
91. Johnson Technology specializes in graphic design and video production.
incurred the following costs for providing services to one of its clients.
Supplies
Labor
Overhead
$ 200
1,500
1,800
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In October 2014, the company
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Johnson Technology's contract with the client discloses 20% profit margin on the cost incurred. Determine the total amount to be received by the
company from its client.
A. $3,500
B. $3,860
C. $4,200
D. $2,800
92. Delaware Inc. incurred the following costs in October, 2014, for producing 5,000 good units of personalized
photo frames.
Direct materials
Direct labor
Overhead applied
$ 15,000
10,000
13,500
The company sold 4,500 units. Determine the product unit cost of photo frames.
A. $8.56
B. $7.70
C. $5.00
D. $5.56
93. Ad-on International is an advertising company. It estimated the overhead costs for March, 2014, to be
$950,000 and direct labor hours to be 5,000 hours. In March, it incurred overhead costs of $1,150,000 and 5,100
labor hours.
What is the predetermined overhead rate for March, 2014?
A. $186 per direct labor hour
B. $190 per direct labor hour
C. $225 per direct labor hour
D. $230 per direct labor hour
94. Ad-on International is an advertising company. It estimated the overhead costs for March, 2014, to be
$950,000 and direct labor hours to be 5,000 hours. In March, it incurred overhead costs of $1,150,000 and 5,100
labor hours.
The amount of overhead costs applied by the company in March, 2014, is:
A. $969,000.
B. $1,150,000.
C. $950,000.
D. $1,173,000.
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95. Ad-on International is an advertising company. It estimated the overhead costs for March, 2014, to be
$950,000 and direct labor hours to be 5,000 hours. In March, it incurred overhead costs of $1,150,000 and 5,100
labor hours.
What is the overapplied or underapplied overhead for Ad-on International for March, 2014?
A. $181,000 underapplied
B. $181,000 overapplied
C. $19,000 underapplied
D. $19,000 overapplied
96. Pearl Inc. incurred overhead costs of $65,000 in May, 2014. The overhead applied on the basis of direct
labor hours for May was $90,000. The company worked for 500 hours in the month. What is the predetermined
overhead rate per direct labor hour?
A. $130 per direct labor hour
B. $180 per direct labor hour
C. $1.38 per direct labor hour
D. $500 per direct labor hour
97. An allocation base used in the process cost allocation is known as
A. cost processor.
B. cost object.
C. cost driver.
D. cost pooler.
98. The traditional approach to applying overhead costs to a product or service is to use a(n)
A. actual overhead rate.
B. activity-based overhead rate.
C. departmental overhead rate.
D. single-plantwide overhead rate.
99. Lotus Company’s actual overhead is greater than the applied overhead. This difference is deemed
immaterial. The company records this by debiting Overhead account and crediting Cost of Goods Sold account.
Which of the following is true of Lotus Company?
A. The company has correctly recorded the difference.
B. The company’s assets are overstated.
C. The company should have credited Work in Process account for the difference.
D. The company’s Cost of Goods Sold account is understated.
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100. Which of the following is true of activity-based costing?
A. It is also called single-plantwide overhead costing.
B. It is helpful when companies manufacture one product.
C. It categorizes all indirect costs by activity.
D. The total overhead costs accumulate in one cost pool.
101. Which of the following will help mangers set reasonable selling prices?
A. Previous year net income of the company
B. Number of employees in the company
C. Unit cost knowledge of the product
D. Previous year’s income tax variance
102. Which of the following activities is a manager likely to carry out everyday?
A. Establishing selling prices for products
B. Ensuring quality of products produced
C. Estimating overhead costs to be incurred
D. Preparing financial statements for a period
103. Which of the following is related to performing in the management process?
A. Comparison of job estimates with actual job costs
B. Preparation of financial statement
C. Computation of a job’s cost per unit
D. Selection of a predetermined overhead rate
104. Disposing under- or overapplied overhead into the Cost of Goods Sold account is related to _____ in the
management process.
A. performing
B. planning
C. evaluating
D. communicating
105. WinLaw is a legal services provider. It is planning to extend its operations by providing tax consultancy
services. Which of the following statements will be true if the company extends its operation as planned?
A. The cost of providing legal services is high as tax consultancy service will be in its initial stages.
B. The company cannot extend its operations since it requires additional staff.
C. The company should know the unit service cost of tax services before determining the fees.
D. The company should drop this service line if it makes lesser profit than legal services.
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106. Which of the following is a manager likely to do while preparing internal performance evaluation reports?
A. Review possible one-time order opportunities
B. Record adjusting journal entries
C. Determine human resource needs for the following period
D. Compare actual costs with targeted costs
107. Which of the following tasks succeeds the disposing under- or overapplied overhead?
A. Preparation of financial statements
B. Comparison of actual and allocated overhead amounts
C. Estimation of overhead costs
D. Establishment of predetermined overhead rate
108. Which of the following is true of performance evaluation reports?
A. Performance evaluation reports help service organizations determine inventory balances.
B. Both external and internal users use performance evaluation reports.
C. They are prepared before establishing the selling price of a product.
D. Their modification will increase product sales.
109. Explain the similarities and differences between job order costing and process costing. Focus on the
characteristics of each system.
110. Dyana Julian, president of Julian Juices, Inc., has approached you with the following questions: “Why
must we use the process costing method to compute product unit costs for three lines of fruit juices? Why can't
we consider using a job order costing approach?”
Prepare a written response to Ms. Julian.
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111. As related to a job order costing system, answer the following questions:
a. What is a job order costing system? Identify three kinds of companies that would use such as system.
b. What is a job order?
c. What is the purpose of a job order cost card? Identify the kinds of information recorded in it.
112. Explain how the unit cost information is used by managers in the management process.
113. Match the following key terms with their meaning:
1. An allocation base
2. Which desires cost data, such as a department
3. Process of assigning indirect costs
4. The collection of indirect costs assigned
Cost object
Cost allocation
Cost pool
Cost driver
____
____
____
____
114. The Work in Process Inventory account for Clinton Company for the month ended September 30 appears
below.
Work in Process Inventory
Beginning Balance
Direct Materials
Direct Labor
Overhead
0
42,000
70,000
91,000
Completed
135,800
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Overhead is applied based on direct labor dollars. Direct material costs for the one job remaining in work in process on September 30 was $12,300.
a. What was the overhead rate used to apply overhead to jobs?
b. Determine the amount of direct labor charged to the one remaining job. Round you answers to nearest dollars.
115. During the first month of the current accounting period, Southern California Company experienced a
devastating loss due to a fire. Many of the accounting records were lost and the company is now trying to
recreate the lost information. Fragments of data found include the following:
1. A portion of the budget indicates that the overhead rate was $10 per direct labor hour.
2. Job 74 was in process and had incurred $9,600 of direct materials and $14,000 of direct labor (1,000 hours).
The company has a single hourly wage rate.
3. During the month, 4,500 direct labor hours were worked.
4. Actual overhead costs were $48,000. No indirect materials were used.
5. The Materials Inventory account had a beginning balance of $28,000 and an ending balance of $18,000.
6. The Finished Goods Inventory account had a beginning balance of $12,000 and an ending balance of $26,000.
7. The Work in Process Inventory account had a beginning balance of $17,000.
8. The Cost of Goods Sold is $171,000.
Calculate the following amounts:
a. Ending work in process inventory account balance, Job No. 74
b. Cost of goods completed
c. Amount of overhead under- or overapplied.
d. Direct materials used
e. Direct materials purchased
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116. Teddy's To Hug, produces Teddy Bears for heart patients. Last month the company produced 500 bears.
Using job order costing, determine the product unit cost for one bear based on the following costs: production
facility utilities, $600; depreciation on production equipment, $550; indirect materials, $450; direct materials,
$1,300; indirect labor, $900; direct labor, $2,500; sales commissions, $3,000; president's salary, $5,000;
insurance on production facility, $700; advertising expense, $600; rent on production facility, $5,000; rent on
sales office, $3,000; and legal expense, $300. Round your answer to two decimal places.
117. Pretty Pillows, Mfg., manufactures silk throw pillows. Last month the company produced 3,890 pillows.
Using job order costing, determine the product unit cost for one pillow based on the following costs: production
facility utilities, $1,600; depreciation on production equipment, $650; indirect materials, $400; direct materials,
$5,300; indirect labor, $1,000; direct labor, $3,500; sales commissions, $4,000; president's salary, $8,000;
insurance on production facility, $1,000; advertising expense, $900; rent on production facility, $6,000; rent on
sales office, $4,000; and legal expense, $600. Round your answer to two decimal places.
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118. Jackson, CPA, entered into a cost-plus contract with Ivory Computer Services for software installation and
Internet interfacing in her accounting practice. The following is Ivory Computer Services' job cost card for this
job. Ivory’s profit factor is 25 percent of total costs. Complete the following card, as indicated:
JOB ORDER COST CARD
Ivory Computer Services
Customer:
Job Order No.:
Contract Type
Type of Service
Date of Completion
Jackson, CPA
_______________________
_______
Cost-Plus
Software Installation and Internet Interfacing
July 13, 2014
Costs Charged to Job
Total Cost
Software installations services
Installation labor
$500
Service overhead (b% of installation labor
(a)
costs)
Total
$800
Internet services
Internet labor
Service overhead (30% of Internet labor
costs)
Total
$200
60
$ (c)
Cost summary to date
Software installation services
Internet services
Total
Profit (25%)
Total Cost
$(d)
(e)
$(f)
(g)
Contract revenue
$(h)
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119. Bear Country produces hand-carved wooden bears and uses a job order costing system. The following are
data on the three jobs worked on in the company's first month of operations:
Number of bears
Direct labor hours worked
Direct materials cost
Direct labor cost
Smokey
180
400
$4,500
$6,000
Rocky
100
200
$2,700
$3,000
Curious
80
140
$2,000
$2,100
Overhead cost is applied to job orders on the basis of direct labor hours at a predetermined rate of $10 per hour. The Smokey and Rocky bears were
completed during the month, and the Curious bears remained in work in process at the end of the month.
a. Compute the cost transferred to finished goods during the month.
b. Compute the unit cost for a Rocky bear.
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120. Quickwork Company uses a job order costing system. On March 1, Quickwork Company's Work in
Process Inventory account shows a beginning balance of $170,000. Production activity for March was as
follows: Materials costing $85,000, along with operating supplies of $20,000, were requisitioned into
production. Quickwork Company's total payroll was $350,000, of which $75,000 was indirect labor. Overhead
is applied at a rate of 125 percent of direct labor cost. Quickwork’s Cost of Goods Sold for the month of May
was $692,000. Finished Goods Inventory was $71,500 on March 1 and $84,000 on March 31. (Quickwork does
not close out overhead accounts until year-end.)
a. Calculate Quickwork’s cost of goods completed for March.
b. Calculate Quickwork’s work in process ending inventory (March 31).
c. One of the jobs that was started in March, Job 208, was completed in April. Job 208 was 250 special-order
decorative lamps. The following costs had been applied to Job 208 as of April 1: direct materials, $1,500; direct
labor, $2,000; overhead, $2,500. In April, $580 in direct materials cost and $900 of direct labor cost were added
to complete Job 208. What was the cost per unit for Job 208? (Show your computations.)
121. Logan Company uses a job order costing system. A predetermined overhead rate of $7 per machine hour in
Department A and 220 percent per direct labor dollar in Department B has been established based upon the
following information at the beginning of the year:
Estimated overhead
Estimated machine hours
Estimated direct labor dollars
Estimated direct labor hours
Department A
Department B
$40,600
5,800
$40,000
5,000
$88,000
12,500
$40,000
3,125
Job 19 for 100 units is started in Department A and completed in Department B. Determine the total cost of Job 19 and complete the job cost card
based on the following information:
Direct materials
Direct labor dollars
Direct labor hours
Machine hours
Department A
Department B
$800
$490
30
15
$950
$180
12
30
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Job Order
JOB ORDER COST CARD
Customer:
Specifications:
Date of Order:
Costs Charged to Job
Batch:
Previous Months
Custom:
Date of Completion:
Current Month
Cost Summary
Direct materials
Department A
Department B
Total direct materials
Direct Labor
Department A
Department B
Total direct labor
Overhead
Department A
Department B
Total overhead
Total cost
Units completed
Product unit cost
122. Taylor Company manufactures guitars and uses a job order costing system with a predetermined overhead
rate of 110 percent per direct labor dollar.
On September 11, 2014, Those Guys ordered 200 beginner guitars which were completed on October 13, 2014.
The Job Order number is 1031. Complete the job order cost card based on the following information:
Direct materials
Direct labor dollars
Direct labor hours
Machine hours
September
$1,800
$1,500
100
20
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October
$1,950
$1,800
120
30
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Job Order
JOB ORDER COST CARD
Customer:
Specifications:
Date of Order:
Costs Charged to Job
Batch:
Previous Months
Custom:
Date of Completion:
Current Month
Cost Summary
Direct materials
Direct labor
Overhead
Total cost
Units completed
Product unit cost
123. Morgan & Morgan is a small firm that assists clients in the preparation of their tax returns. The firm has
five accountants and five researchers, and it uses job order costing to determine the cost of each client's return.
The firm is divided into two departments: (1) Preparation and (2) Research & Planning. Each department has its
own overhead application rate. The Preparation Department's rate is based on accountant labor costs and
Research & Planning is based on the number of research hours. The following is the company's estimates for
the current year's operations.
Accountant hours
Research hours
Accountant labor costs
Materials and supplies
Overhead costs
Preparation
8,000
0
$480,000
10,000
230,400
Research & Planning
3,000
3,000
$135,000
5,000
204,000
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Client No. 2006-713 was completed during April of the current year and incurred the following costs and hours:
Preparation
30
0
$ 25
1,800
Accountant hours
Research hours
Materials and supplies
Accountant labor costs
Research & Planning
4
8
$ 15
180
a. Compute the overhead rates to be used by both departments.
b. Determine the cost of Client No. 2006-713, by department and in total.
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Chapter 2: Costing Systems: Job Order Costing Key
1. A job order costing system measures costs of each processes using an inventory account for each.
FALSE
2. The computations for costs to be transferred out of Work in Process Inventory differ if the production process
involves multiple departments rather than a single department.
FALSE
3. Like a job order costing system, a process costing system is restricted to one Work in Process Inventory
account.
FALSE
4. Identical products are produced in a continuous flow production process.
TRUE
5. In a job order costing system, costs are traced to a specific job order.
TRUE
6. An advertising company would probably use a process costing system.
FALSE
7. Companies that produce custom-made products usually use a process costing system.
FALSE
8. Job order costing is used by companies that make unique or special-order products.
TRUE
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9. In a process costing system, product costs are traced to work cells.
TRUE
10. A job order costing system is used by companies that manufacture large amounts of similar products.
FALSE
11. A typical operations costing system for a manufacturer incorporates parts of both job order costing and
process costing.
TRUE
12. The production process determines the product costing system needed.
TRUE
13. A process costing system first assigns the costs to the products manufactured by the departments, and then
traces the costs of direct materials, direct labor, and overhead to departments.
FALSE
14. A company using the periodic inventory system records cost of goods sold when products are sold.
FALSE
15. The purchasing process begins with a request for indirect materials, whereas the manufacturing process
begins with a request for direct materials.
FALSE
16. Costs for individual jobs are maintained on material cost cards when job order costing is in use.
FALSE
17. Job order cost cards for incomplete jobs make up the ending balance of the Finished Goods Inventory
account.
FALSE
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18. When a job has been completed, all of the costs assigned to that job are moved to the Cost of Goods Sold
account.
FALSE
19. In a job order costing system, when overhead costs are applied, they decrease the Work in Process Inventory
account.
FALSE
20. In a job order costing system, indirect labor costs incurred are debited to the Overhead account.
TRUE
21. In a job order costing system, the transfer of overhead costs to the Work in Process Inventory account must
take place before product unit costs can be computed.
TRUE
22. In a job order costing system, when indirect materials are used, the Overhead account is increased.
TRUE
23. In a job order costing system, indirect labor costs are recorded by increasing the Payroll Payable account
and increasing the Overhead account.
TRUE
24. In a job order costing system, when the goods are sold, the Cost of Goods Sold account is increased, and the
Finished Goods Inventory account is decreased for the selling price of the goods sold.
FALSE
25. The ending balance in the Work in Process Inventory account equals the ending Overhead balance.
FALSE
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26. A zero balance in Work in Process Inventory at the start of the period means all previously completed
products have been shipped.
FALSE
27. To prepare financial statements at the end of the accounting period, the actual overhead cost for the period
and the estimated overhead that was applied during the period must be reconciled in a job order costing system.
TRUE
28. If applied overhead exceeds actual overhead, cost of goods sold must be increased by the amount of the
overapplied overhead in a job order costing system.
FALSE
29. Job order cost cards and cost flows through the inventory accounts form the core of a job order costing
system.
TRUE
30. Regardless of the cost accounting system used, when the products are completed, they are transferred from
work in process inventory to finished goods inventory.
TRUE
31. Job costs in a service organization end up in the Finished Goods Inventory account when a job is
completed.
FALSE
32. In cost-plus contracts, a predetermined amount of profit is added to the cost of the contract.
TRUE
33. In a service organization using a job order costing system, actual overhead will be the same as applied
overhead.
FALSE
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34. The ending balance of Work in Process account is compared with the total costs shown on the job order cost
cards to ensure correctness.
TRUE
35. In a job order costing system, a separate job order cost card is used for each individual job.
TRUE
36. After a job is completed, the product’s unit cost can be determined from the job order cost card.
TRUE
37. The process of assigning a collection of indirect costs is termed as cost pooling.
FALSE
38. Predetermined overhead rate is calculated by dividing actual overhead costs by actual cost driver activity.
FALSE
39. Overhead applied is calculated by multiplying predetermined activity rate and actual cost driver activity.
TRUE
40. If the actual overhead costs are more than applied overhead costs, the difference represents overapplied
overhead costs.
FALSE
41. When planning, managers allocate overhead costs using either the traditional or ABC approach.
FALSE
42. Managers’ knowledge on unit cost helps in setting reasonable selling prices for products.
TRUE
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43. Job estimates must be compared with actuals for evaluating performance.
TRUE
44. Service organizations use unit costs of services to determine inventory balances.
FALSE
45. Financial statements referred by external stakeholders compare actual unit costs with targeted unit costs.
FALSE
46. Managers prepare financial statements to communicate the company’s performance to its external users.
TRUE
47. The type of product costing system used by a company is dictated by the
A. cost flow assumptions made by the company.
B. production process of the product.
C. inventory system used by the company.
D. selling price of the product.
48. Which of the following represents the product costs on the income statement?
A. Cost of goods sold
B. Sales revenue
C. Sales commissions
D. None of these
49. Which of the following is a document prepared every period for each process?
A. Process cost card
B. Process cost report
C. Process cost control sheet
D. Process cost recognition card
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50. In which of the following situations should a company use process costing rather than job order costing?
A. If the product cost is accumulated in a single Work in Process Inventory account
B. If the product is produced based on individual customer specifications
C. If the product is composed of mass-produced homogeneous units
D. If the product goes through a single stage of production
51. Which of the following firms would most likely use a process costing system?
A. Firm providing legal services
B. Firm manufacturing papers
C. Firm providing advertising services
D. Firm printing wedding invitations
52. Which of the following characteristics applies to process costing, but does not apply to job order costing?
A. The use of single Work in Process accounts
B. The use of equivalent units
C. Separate, identifiable jobs
D. The use of predetermined overhead rates
53. Which of the following is not an objective of product costing systems?
A. To provide information for cost planning
B. To assist in the preparation of the income statement
C. To determine the taxable profits
D. To provide information for product pricing
54. Which of the following is a characteristic of a job order costing system?
A. Uses several Work in Process Inventory accounts
B. Uses job cost cards to keep track of each job in process
C. Assigns costs to specific processes
D. Recognizes cost of materials when products are sold
55. Which of the following products would probably use a job order costing system?
A. Pens
B. Instant coffee
C. Computer monitors
D. Advertisements
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56. Process costing is applicable to production operations that
A. utilize several processes, departments, or work cells in a series.
B. do not assign overhead costs to operations.
C. produce products that are made to order.
D. produce unique products.
57. Which of the following accurately describes a difference between job order and process costing systems?
A. In job order costing systems, overhead costs are treated as product costs, whereas in process costing systems,
overhead costs are treated as period costs.
B. Job order costing systems do not assign costs to production, whereas process costing systems do.
C. In job order costing systems, costs are traced to a specific job order, whereas in process costing systems,
costs are traced to work cells and then assigned to products manufactured.
D. In a job order costing system, selling costs are treated as period costs, whereas they are treated as product
costs in a process costing system.
58. A job order costing system measures product costs
A. using process cost reports.
B. in several Work in Process Inventory account.
C. with regard to the process that created the cost.
D. for each completed unit.
59. Which of the following is not a characteristic of a process costing system?
A. A specific time period is used
B. Several Work in Process Inventory accounts are used
C. Product costs are grouped by processes, departments, or work cells
D. Customized products are manufactured
60. Which of the following products would probably be produced by a company using a process costing
system?
A. House
B. Wedding gowns
C. Bags
D. Movie
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61. Which of the following entities would probably use a process costing system?
A. An oil refinery
B. A yacht builder
C. A custom furniture company
D. A custom jewelry manufacturer
62. If the difference between overhead applied and actual overhead is insignificant, it is usually written off to
A. Cost of Goods Sold.
B. Work in Process Inventory.
C. Finished Goods Inventory.
D. Materials Inventory.
63. The applied overhead of a job is more than the actual overhead and it is considered immaterial by the
company. An entry to record this would involve a
A. debit to the Materials Inventory account.
B. credit to the Overhead account.
C. credit to the Cost of Goods Sold account.
D. debit to the Work in Process Inventory account.
64. Applied overhead of a company exceeds actual overhead when the
A. Overhead account has a credit balance.
B. journal entry to account for the difference involves a debit to Cost of Goods Sold.
C. Overhead account has a debit balance.
D. company has overspent in the overhead cost area.
65. If there is a credit balance in the Payroll Payable at the end of the accounting period, it represents
A. the amount by which applied payroll was greater than actual payroll.
B. the amount by which actual payroll was greater than applied payroll.
C. labor costs which have not been paid.
D. an amount that should be charged to Cost of Goods Sold.
66. When Smith Builder’s Designer House #201 is completed, Smith’s
A. Work in Process Inventory is increased.
B. total assets are increased.
C. Work in Process Inventory is decreased.
D. total assets are decreased.
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67. The total of the dollar amounts on the job order cost cards that have not been completed would be equal to
the
A. cost of goods completed.
B. balance in the Finished Goods Inventory account.
C. cost of goods sold.
D. balance in the Work in Process Inventory account.
68. Costs assigned to the building of a ship should appear on the income statement when
A. the ship is completed.
B. the ship is sold.
C. the purchase order to manufacture the ship is received.
D. cash is collected for the sale of the ship.
69. The basic document for keeping track of all costs in a job order costing system is a
A. job order cost card.
B. labor time card.
C. process cost report.
D. materials requisition form.
70. Under a job order costing system, the dollar amount of the entry to record the transfer of goods from Work
in Process Inventory to Finished Goods Inventory is the total of the costs charged to all jobs
A. started during the period.
B. completed and sold during the period.
C. completed during the period.
D. started and completed during the period.
71. The Work in Process Inventory account in a job order costing system consists of
A. time conversion cards.
B. job conversion cards.
C. job order cost cards.
D. product cost cards.
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72. When direct materials are issued from inventory to production under a job order costing system, an increase
is recorded in the
A. Overhead account.
B. Work in Process Inventory account.
C. Materials Inventory account.
D. Finished Goods Inventory account.
73. The following information is available at the end of May:
Balance in work in process on May 1
$141,800
Direct materials costs for May
174,500
Direct labor costs for May
162,500
Overhead applied at rate of 140% of direct labor
dollars
Jobs completed during May:
Job 84
Job 85
Job 86
Job 87
$198,780
102,520
119,450
93,150
Job 88 was not complete at the end of May.
If $72,400 of materials were charged to Job 88's job cost card, how much overhead was applied to Job 88?
A. $35,100
B. $70,000
C. $72,400
D. $120,000
74. The balance in the Work in Process Inventory account on October 1 was $14,000, and the balance on
October 31 was $85,400. Costs incurred during the month were as follows: direct materials, $55,820; direct
labor, $58,420; and overhead, $40,000. What amount was transferred to the Finished Goods Inventory account
during October?
A. $82,840
B. $154,240
C. $239,640
D. $140,240
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75. Unit costs for each job are computed by dividing
A. estimated total costs by planned units to be produced.
B. actual costs by actual units sold.
C. cost of direct materials, direct labor, and overhead by number of units produced.
D. estimated total costs by actual units sold.
76. The _________ provides the most direct means of calculating unit costs for a job.
A. job order cost card
B. Finished Goods Inventory account
C. general ledger
D. Materials Inventory account
77. The following information is available at the end of the period for the completed Job 73:
Beginning balance
Direct materials
Direct labor
Overhead applied
$17,000
30,600
24,500
41,700
Total number of units produced
Total number of units sold
35,000
28,500
What is the unit cost for Job 73?
A. $2.55
B. $3.19
C. $1.50
D. $3.92
78. The balances on the job cost sheets of uncompleted jobs will be equal to the balance in the
A. Finished Goods Inventory account.
B. Cost of Goods Sold account.
C. Work in Process Inventory account.
D. Overhead account.
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79. Applied overhead is less than actual overhead incurred during the year. Which of the following journal
entries is made to close the Overhead account if this difference is immaterial?
A. Overhead
Work in Process
B. Cost of Goods Sold
Overhead
C. Overhead
Finished Goods Inventory
D. Cost of Goods Sold
Finished Goods Inventory
80. Which of the following is the entry to record indirect labor costs incurred?
A. Work in Process Inventory
Overhead
B. Overhead
Work in Process Inventory
C. Overhead
Payroll Payable
D. Payroll Payable
Overhead
81. In a job order costing system, the purchase of materials on account should be recorded as follows:
A. Materials Inventory
Work in Process Inventory
B. Materials Inventory
Accounts Payable
C. Work in Process Inventory
Accounts Payable
D. Accounts Payable
Materials Inventory
82. Service organizations incur little or no cost for
A. services.
B. overhead.
C. materials.
D. labor.
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83. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The indirect labor cost is
A. $7,000.
B. $3,000.
C. $14,000.
D. $30,000.
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84. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The cost of goods manufactured is
A. $62,300
B. $64,000
C. $18,000
D. $1,700
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85. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The cost of goods sold (after adjusting for under- or overapplied overhead) is
A. $92,300.
B. $60,300.
C. $34,300.
D. $66,300.
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86. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The applied overhead is
A. $31,000.
B. $30,000.
C. $18,000.
D. $62,300.
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87. Cardsheet Company
The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:
Materials
Inventory
Beg Bal 1,000
(1)
17,000
Work in
Process
Inventory
Beg Bal 9,000
(2)
(4)
(6)
Overhead
(2)
11,000
15,000
30,000
(3)
(4)
(5)
14,000
7,000
3,000
7,000
18, (2)
000
62, (7)
300
30, (6)
000
Cost of
Goods
Sold
Accou
nts
Payable
17, (1)
000
3,0 (5)
00
Finished
Goods
Inventory
Beg Bal 16,000
(7)
62,300
End Bal 13,000
Payroll
Payable
5,0 Beg Bal
00
31, (4)
000
Office
Salaries
Expense
(4)
9,000
Accumulat
ed
Depreciati
on
(Factory)
80, Beg Bal
000
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14, (3)
000
The cost of direct materials used in production is
A. $15,000.
B. $11,000.
C. $29,000.
D. $62,300.
88. The costs of completed jobs in a service organization is transferred to the
A. Work in Process Inventory account.
B. Finished Goods Inventory account.
C. Cost of Goods Sold account.
D. Cost of Services account.
89. Which of the following cannot be learned by analyzing job order cost cards?
A. The balance of Work in Process Inventory at the end of the period
B. The cost of all jobs done for a particular customer
C. The completion time of jobs yet to be completed
D. The type of products ordered by a particular customer
90. Johnson Technology specializes in graphic design and video production. In October 2014, the company
incurred the following costs for providing services to one of its clients.
Supplies
Labor
Overhead
$
200
1,500
1,800
Johnson Technology's contract with the client discloses a 20% profit margin on the cost incurred. Determine the profit earned by the company by
providing services.
A. $3,500
B. $700
C. $4,200
D. $360
91. Johnson Technology specializes in graphic design and video production.
incurred the following costs for providing services to one of its clients.
Supplies
Labor
Overhead
$ 200
1,500
1,800
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In October 2014, the company
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Johnson Technology's contract with the client discloses 20% profit margin on the cost incurred. Determine the total amount to be received by the
company from its client.
A. $3,500
B. $3,860
C. $4,200
D. $2,800
92. Delaware Inc. incurred the following costs in October, 2014, for producing 5,000 good units of personalized
photo frames.
Direct materials
Direct labor
Overhead applied
$ 15,000
10,000
13,500
The company sold 4,500 units. Determine the product unit cost of photo frames.
A. $8.56
B. $7.70
C. $5.00
D. $5.56
93. Ad-on International is an advertising company. It estimated the overhead costs for March, 2014, to be
$950,000 and direct labor hours to be 5,000 hours. In March, it incurred overhead costs of $1,150,000 and 5,100
labor hours.
What is the predetermined overhead rate for March, 2014?
A. $186 per direct labor hour
B. $190 per direct labor hour
C. $225 per direct labor hour
D. $230 per direct labor hour
94. Ad-on International is an advertising company. It estimated the overhead costs for March, 2014, to be
$950,000 and direct labor hours to be 5,000 hours. In March, it incurred overhead costs of $1,150,000 and 5,100
labor hours.
The amount of overhead costs applied by the company in March, 2014, is:
A. $969,000.
B. $1,150,000.
C. $950,000.
D. $1,173,000.
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95. Ad-on International is an advertising company. It estimated the overhead costs for March, 2014, to be
$950,000 and direct labor hours to be 5,000 hours. In March, it incurred overhead costs of $1,150,000 and 5,100
labor hours.
What is the overapplied or underapplied overhead for Ad-on International for March, 2014?
A. $181,000 underapplied
B. $181,000 overapplied
C. $19,000 underapplied
D. $19,000 overapplied
96. Pearl Inc. incurred overhead costs of $65,000 in May, 2014. The overhead applied on the basis of direct
labor hours for May was $90,000. The company worked for 500 hours in the month. What is the predetermined
overhead rate per direct labor hour?
A. $130 per direct labor hour
B. $180 per direct labor hour
C. $1.38 per direct labor hour
D. $500 per direct labor hour
97. An allocation base used in the process cost allocation is known as
A. cost processor.
B. cost object.
C. cost driver.
D. cost pooler.
98. The traditional approach to applying overhead costs to a product or service is to use a(n)
A. actual overhead rate.
B. activity-based overhead rate.
C. departmental overhead rate.
D. single-plantwide overhead rate.
99. Lotus Company’s actual overhead is greater than the applied overhead. This difference is deemed
immaterial. The company records this by debiting Overhead account and crediting Cost of Goods Sold account.
Which of the following is true of Lotus Company?
A. The company has correctly recorded the difference.
B. The company’s assets are overstated.
C. The company should have credited Work in Process account for the difference.
D. The company’s Cost of Goods Sold account is understated.
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100. Which of the following is true of activity-based costing?
A. It is also called single-plantwide overhead costing.
B. It is helpful when companies manufacture one product.
C. It categorizes all indirect costs by activity.
D. The total overhead costs accumulate in one cost pool.
101. Which of the following will help mangers set reasonable selling prices?
A. Previous year net income of the company
B. Number of employees in the company
C. Unit cost knowledge of the product
D. Previous year’s income tax variance
102. Which of the following activities is a manager likely to carry out everyday?
A. Establishing selling prices for products
B. Ensuring quality of products produced
C. Estimating overhead costs to be incurred
D. Preparing financial statements for a period
103. Which of the following is related to performing in the management process?
A. Comparison of job estimates with actual job costs
B. Preparation of financial statement
C. Computation of a job’s cost per unit
D. Selection of a predetermined overhead rate
104. Disposing under- or overapplied overhead into the Cost of Goods Sold account is related to _____ in the
management process.
A. performing
B. planning
C. evaluating
D. communicating
105. WinLaw is a legal services provider. It is planning to extend its operations by providing tax consultancy
services. Which of the following statements will be true if the company extends its operation as planned?
A. The cost of providing legal services is high as tax consultancy service will be in its initial stages.
B. The company cannot extend its operations since it requires additional staff.
C. The company should know the unit service cost of tax services before determining the fees.
D. The company should drop this service line if it makes lesser profit than legal services.
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106. Which of the following is a manager likely to do while preparing internal performance evaluation reports?
A. Review possible one-time order opportunities
B. Record adjusting journal entries
C. Determine human resource needs for the following period
D. Compare actual costs with targeted costs
107. Which of the following tasks succeeds the disposing under- or overapplied overhead?
A. Preparation of financial statements
B. Comparison of actual and allocated overhead amounts
C. Estimation of overhead costs
D. Establishment of predetermined overhead rate
108. Which of the following is true of performance evaluation reports?
A. Performance evaluation reports help service organizations determine inventory balances.
B. Both external and internal users use performance evaluation reports.
C. They are prepared before establishing the selling price of a product.
D. Their modification will increase product sales.
109. Explain the similarities and differences between job order costing and process costing. Focus on the
characteristics of each system.
The main similarity between a job order costing system and a process costing system is that both provide
information about product unit cost that managers can use to price products, control costs, value inventory, and
prepare financial statements.
The main difference is that a job order costing system traces product costs to a specific job order or batch of
products and uses a single Work in Process Inventory account to summarize the costs of all jobs. This account is
supported by job order cost cards. A process costing system traces the production costs to processes,
departments, or work cells. A process costing system uses several Work in Process Inventory accounts—one for
each process, department, or work cell.
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110. Dyana Julian, president of Julian Juices, Inc., has approached you with the following questions: “Why
must we use the process costing method to compute product unit costs for three lines of fruit juices? Why can't
we consider using a job order costing approach?”
Prepare a written response to Ms. Julian.
The process costing method is suitable for businesses that produce liquid products and have a continuous
production process. The key is a continuous process and the fact that it is difficult to see when one order has
been completed and another started. A job order costing method, on the other hand, is suitable when a company
produces special-order or one-of-a-kind products. In this situation, it is necessary to collect costs for each order.
A juice beverage business making only three lines of beverages lends itself to the process costing method. If the
company switches strategies and begins to produce special-order juices in small quantities or for specific
customers, then a job order costing method may be appropriate.
111. As related to a job order costing system, answer the following questions:
a. What is a job order costing system? Identify three kinds of companies that would use such as system.
b. What is a job order?
c. What is the purpose of a job order cost card? Identify the kinds of information recorded in it.
a. A job order costing system is a product costing system used by companies that make unique or special-order
products. Companies that manufacture products such as customized publications, specially built cabinets, or
made-to-order draperies would use this system. The costs of direct materials, direct labor, and overhead are
traced to a specific job order or batch of products.
b. A job order is a customer order for a specific number of specially designed, made-to-order products.
c. Because all costs are charged to one Work in Process Inventory account in a job order costing system, job
order cost cards are needed to link those costs to specific jobs. There is one job order cost card for each job
being worked on, and all costs for the job are accumulated on that card. Each job order cost card provides space
to record the costs of direct materials, direct labor, and applied overhead. In addition, space should be provided
for the job order number, product specifications, the customer's name, the date of the order, the projected
completion date, and a cost summary.
112. Explain how the unit cost information is used by managers in the management process.
Managers depend on relevant and reliable information about costs to manage their organizations.
·
When planning, unit cost information will help managers to set reasonable selling prices and estimate the
cost of their products or services.
·
When performing every day tasks, unit cost information is helpful in controlling costs and ensuring quality.
·
While evaluating the results, managers use unit cost information to analyze performance by comparing job
estimates with actual job costs.
·
While communicating the results to internal and external users, managers use unit cost information to
prepare financial statements and internal management reports.
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113. Match the following key terms with their meaning:
1. An allocation base
2. Which desires cost data, such as a department
3. Process of assigning indirect costs
4. The collection of indirect costs assigned
Cost object
Cost allocation
Cost pool
Cost driver
2
3
4
1
114. The Work in Process Inventory account for Clinton Company for the month ended September 30 appears
below.
Work in Process Inventory
Beginning Balance
Direct Materials
Direct Labor
Overhead
0
42,000
70,000
91,000
Completed
135,800
Overhead is applied based on direct labor dollars. Direct material costs for the one job remaining in work in process on September 30 was $12,300.
a. What was the overhead rate used to apply overhead to jobs?
b. Determine the amount of direct labor charged to the one remaining job. Round you answers to nearest dollars.
a.
$91,000 (overhead applied)
$70,000 (direct labor dollars)
=
$1.30 per direct labor dollar or 130% of direct labor dollars
b.
$19,607
$67,200
12,300
ending work in process balance
direct materials cost in ending inventory
$54,900
direct labor and overhead
Let X
= direct labor dollars
X + 1.3X
X
1.3X
= $54,900
= $ 23,870 direct labor
= $31,030 overhead
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115. During the first month of the current accounting period, Southern California Company experienced a
devastating loss due to a fire. Many of the accounting records were lost and the company is now trying to
recreate the lost information. Fragments of data found include the following:
1. A portion of the budget indicates that the overhead rate was $10 per direct labor hour.
2. Job 74 was in process and had incurred $9,600 of direct materials and $14,000 of direct labor (1,000 hours).
The company has a single hourly wage rate.
3. During the month, 4,500 direct labor hours were worked.
4. Actual overhead costs were $48,000. No indirect materials were used.
5. The Materials Inventory account had a beginning balance of $28,000 and an ending balance of $18,000.
6. The Finished Goods Inventory account had a beginning balance of $12,000 and an ending balance of $26,000.
7. The Work in Process Inventory account had a beginning balance of $17,000.
8. The Cost of Goods Sold is $171,000.
Calculate the following amounts:
a. Ending work in process inventory account balance, Job No. 74
b. Cost of goods completed
c. Amount of overhead under- or overapplied.
d. Direct materials used
e. Direct materials purchased
a. Ending work in process inventory
= Direct Materials + Direct Labor + Applied Overhead
$33,600
= $9,600 + $14,000 + ($10 ´ 1,000 hours)
b. Cost of goods completed
= Ending finished goods inventory + Cost
of goods sold ¾ Beginning finished goods
inventory
$185,000
= $26,000 + $171,000
c. Underapplied overhead
= Actual overhead
$3,000
= $48,000
d. Direct materials used
= Ending work in process + Cost of goods
completed
Direct labor
$93,600
Applied overhead
($10 ´ 4,500 hours)
Beginning work in process
Applied overhead
= $33,600 + $185,000
4,500 hours)
e. Direct materials purchased
$12,000
$17,000
($14 ´
$45,000
= Ending materials inventory + Direct
materials used
inventory
Beginning materials
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$83,600
= $18,000 + $93,600
$28,000
116. Teddy's To Hug, produces Teddy Bears for heart patients. Last month the company produced 500 bears.
Using job order costing, determine the product unit cost for one bear based on the following costs: production
facility utilities, $600; depreciation on production equipment, $550; indirect materials, $450; direct materials,
$1,300; indirect labor, $900; direct labor, $2,500; sales commissions, $3,000; president's salary, $5,000;
insurance on production facility, $700; advertising expense, $600; rent on production facility, $5,000; rent on
sales office, $3,000; and legal expense, $300. Round your answer to two decimal places.
Job Costs:
Direct materials
Direct labor
Overhead:
Production facility utilities
Depreciation on production equipment
Indirect materials
Indirect labor
Insurance on production facility
Rent on production facility
$ 1,300
2,500
$ 600
550
450
900
700
5,000
8,200
$12,000
Total cost
Product unit cost = Total cost / Number of units produced
($12,000 / 500)
$24.00
117. Pretty Pillows, Mfg., manufactures silk throw pillows. Last month the company produced 3,890 pillows.
Using job order costing, determine the product unit cost for one pillow based on the following costs: production
facility utilities, $1,600; depreciation on production equipment, $650; indirect materials, $400; direct materials,
$5,300; indirect labor, $1,000; direct labor, $3,500; sales commissions, $4,000; president's salary, $8,000;
insurance on production facility, $1,000; advertising expense, $900; rent on production facility, $6,000; rent on
sales office, $4,000; and legal expense, $600. Round your answer to two decimal places.
Job Costs:
Direct materials
Direct labor
Overhead:
Production facility utilities
Depreciation on production equipment
Indirect materials
Indirect labor
Insurance on production facility
Rent on production facility
$ 5,300
3,500
$1,600
650
400
1,000
1,000
6,000
Total cost
Product unit cost = Total cost / Number of units produced
($19,450 / 3,890)
10,650
$19,450
$5.00
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118. Jackson, CPA, entered into a cost-plus contract with Ivory Computer Services for software installation and
Internet interfacing in her accounting practice. The following is Ivory Computer Services' job cost card for this
job. Ivory’s profit factor is 25 percent of total costs. Complete the following card, as indicated:
JOB ORDER COST CARD
Ivory Computer Services
Customer:
Job Order No.:
Contract Type
Type of Service
Date of Completion
Jackson, CPA
_______________________
_______
Cost-Plus
Software Installation and Internet Interfacing
July 13, 2014
Costs Charged to Job
Total Cost
Software installations services
Installation labor
$500
Service overhead (b% of installation labor
(a)
costs)
Total
$800
Internet services
Internet labor
Service overhead (30% of Internet labor
costs)
Total
$200
60
$ (c)
Cost summary to date
Software installation services
Internet services
Total
Profit (25%)
Total Cost
$(d)
(e)
$(f)
(g)
Contract revenue
$(h)
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JOB ORDER COST CARD
Ivory Computer Services
Customer:
Job Order No.:
Contract Type:
Type of Service:
Date of Completion:
Costs Charged to Job
Software installations services
Installation labor
Service overhead (60% of
installation labor costs)
Total
Internet services
Internet labor
Service overhead (30% of
Internet labor costs)
Total
Jackson, CPA_____________________ ____
____________________________________________
Cost-Plus_____________________________________
Software Installation and Internet
Interfacing
July 13, 2014
__________________________
Total Cost
$ 500
300
$ 800
$ 200
60
$ 260
Cost summary to date
Software installation services $ 800
Internet services
260
Total
$ 1,060
Profit (25%)
265
Contract revenue
$1,325
119. Bear Country produces hand-carved wooden bears and uses a job order costing system. The following are
data on the three jobs worked on in the company's first month of operations:
Number of bears
Direct labor hours worked
Direct materials cost
Direct labor cost
Smokey
180
400
$4,500
$6,000
Rocky
100
200
$2,700
$3,000
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Curious
80
140
$2,000
$2,100
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Overhead cost is applied to job orders on the basis of direct labor hours at a predetermined rate of $10 per hour. The Smokey and Rocky bears were
completed during the month, and the Curious bears remained in work in process at the end of the month.
a. Compute the cost transferred to finished goods during the month.
b. Compute the unit cost for a Rocky bear.
a. Jobs completed
Smokey
Direct materials
Direct labor
Overhead ($10 ´ 400)
$ 4,500
6,000
4,000
$14,500
Rocky
Direct materials
Direct labor
Overhead ($10 ´ 200)
$2,700
3,000
2,000
$7,700
Cost transferred to finished goods
Smokey:
Rocky:
b.
Unit cost for a Rocky bear =
$7,700
100 bears
= $77 per bear
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$14,500
7,700
$22,200
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120. Quickwork Company uses a job order costing system. On March 1, Quickwork Company's Work in
Process Inventory account shows a beginning balance of $170,000. Production activity for March was as
follows: Materials costing $85,000, along with operating supplies of $20,000, were requisitioned into
production. Quickwork Company's total payroll was $350,000, of which $75,000 was indirect labor. Overhead
is applied at a rate of 125 percent of direct labor cost. Quickwork’s Cost of Goods Sold for the month of May
was $692,000. Finished Goods Inventory was $71,500 on March 1 and $84,000 on March 31. (Quickwork does
not close out overhead accounts until year-end.)
a. Calculate Quickwork’s cost of goods completed for March.
b. Calculate Quickwork’s work in process ending inventory (March 31).
c. One of the jobs that was started in March, Job 208, was completed in April. Job 208 was 250 special-order
decorative lamps. The following costs had been applied to Job 208 as of April 1: direct materials, $1,500; direct
labor, $2,000; overhead, $2,500. In April, $580 in direct materials cost and $900 of direct labor cost were added
to complete Job 208. What was the cost per unit for Job 208? (Show your computations.)
a.
Finished Goods Inventory
3/1
71,500
Completed
704,500
_____________________________
3/31
84,000
Cost of goods completed =
692,000 (Cost of Goods Sold)
_____________________________
$692,000 cost of goods sold
+ 84,000 ending inventory
$776,000
71,500 beginning inventory
$704,500 cost of goods completed
b.
Work in process beginning inventory
+ Materials used
+ Direct labor
+ Overhead
Total in work in process
Cost of goods completed
Work in process ending inventory
$170,000
85,000
275,000 ($350,000
$75,000)
343,750 (1.25 ´ $275,000)
$873,750
704,500
$169,250
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c.
Job Beginning
208:
inventory: Direct materials
Direct labor
Overhead
Added in Direct materials
June:
Direct labor
Overhead
Total cost
$1,500
2,000
2,500
580
900
1,125
$8,605
(1.25 ´ $900)
$8,605 
250 =
$34.42 per
unit
121. Logan Company uses a job order costing system. A predetermined overhead rate of $7 per machine hour in
Department A and 220 percent per direct labor dollar in Department B has been established based upon the
following information at the beginning of the year:
Estimated overhead
Estimated machine hours
Estimated direct labor dollars
Estimated direct labor hours
Department A
Department B
$40,600
5,800
$40,000
5,000
$88,000
12,500
$40,000
3,125
Job 19 for 100 units is started in Department A and completed in Department B. Determine the total cost of Job 19 and complete the job cost card
based on the following information:
Direct materials
Direct labor dollars
Direct labor hours
Machine hours
Department A
Department B
$800
$490
30
15
$950
$180
12
30
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download full file at http://testbankcafe.com
Job Order
JOB ORDER COST CARD
Customer:
Specifications:
Date of Order:
Costs Charged to Job
Batch:
Previous Months
Custom:
Date of Completion:
Current Month
Cost Summary
Direct materials
Department A
Department B
Total direct materials
Direct Labor
Department A
Department B
Total direct labor
Overhead
Department A
Department B
Total overhead
Total cost
Units completed
Product unit cost
Job Order
19
JOB ORDER COST
CARD
Logan Company
Customer:
Specifications:
Date of Order:
Costs Charged to Job
Previous Months
Direct materials
Department A
Department B
Total direct materials
Direct Labor
Department A 30 hr.
Department B 12 hr.
Total direct labor
Overhead
Department A ($7 x 15
machine
hr.)
Department B (220% x
$180)
Total overhead
Total cost
Units completed
Product unit cost
Batch:
Date of Completion:
Current Month
Custom:
Cost Summary
$800
950
$1,750
$490
180
670
$105
396
501
$2,921
 100
$29.21
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download full file at http://testbankcafe.com
122. Taylor Company manufactures guitars and uses a job order costing system with a predetermined overhead
rate of 110 percent per direct labor dollar.
On September 11, 2014, Those Guys ordered 200 beginner guitars which were completed on October 13, 2014.
The Job Order number is 1031. Complete the job order cost card based on the following information:
September
$1,800
$1,500
100
20
Direct materials
Direct labor dollars
Direct labor hours
Machine hours
October
$1,950
$1,800
120
30
Job Order
JOB ORDER COST CARD
Customer:
Specifications:
Date of Order:
Costs Charged to Job
Batch:
Previous Months
Date of Completion:
Current Month
Custom:
Cost Summary
Direct materials
Direct labor
Overhead
Total cost
Units completed
Product unit cost
download full file at http://testbankcafe.com
download full file at http://testbankcafe.com
Job Order
1031
JOB ORDER COST
CARD
Taylor Company
Customer:
Specifications:
Date of Order:
Costs Charged to Job
Direct materials
Those Guys
200 Beginner guitars
9/11/2014
Previous Months
$1,800
Batch:
Date of Completion:
Current Month
$1,950
10/13/2014
Cost Summary
$ 3,750
Direct labor
1,500
1,800
3,300
Overhead
(110% of direct labor)
Total cost
Units completed
Product unit cost
Custom:
1,650
1,980
3,630
$4,950
$5,730
$10,680
 200
$ 53.40
123. Morgan & Morgan is a small firm that assists clients in the preparation of their tax returns. The firm has
five accountants and five researchers, and it uses job order costing to determine the cost of each client's return.
The firm is divided into two departments: (1) Preparation and (2) Research & Planning. Each department has its
own overhead application rate. The Preparation Department's rate is based on accountant labor costs and
Research & Planning is based on the number of research hours. The following is the company's estimates for
the current year's operations.
Accountant hours
Research hours
Accountant labor costs
Materials and supplies
Overhead costs
Preparation
8,000
0
$480,000
10,000
230,400
Research & Planning
3,000
3,000
$135,000
5,000
204,000
Client No. 2006-713 was completed during April of the current year and incurred the following costs and hours:
Accountant hours
Research hours
Materials and supplies
Accountant labor costs
Preparation
30
0
$ 25
1,800
Research & Planning
4
8
$ 15
180
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download full file at http://testbankcafe.com
a. Compute the overhead rates to be used by both departments.
b. Determine the cost of Client No. 2006-713, by department and in total.
a. Preparation Department overhead rate = $230,400  $480,000 = 48% of accountant labor costs; Research &
Planning Department overhead rate = $204,000  3,000 research hours = $68 per research hour
b.
Accountant labor costs
Materials and supplies
Applied overhead
Totals
Preparation
$1,800
25
864
$2,689
Research & Planning
$180
15
544
$739
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Total
$1,980
40
1,408
$3,428